Thursday, May 31, 2012

Why College Degrees Matter

This willingness to relocate is a large factor in America's prosperity, and it always has been. Today, about half of American households change addresses every five years, a number that would be unthinkable in Europe, and a significant number relocate to a different city. About 33% of Americans reside in a state other than the one they were born in, up from 20% in 1900.

This staggering degree of mobility has both positive and negative effects. On the one hand, moving has social and personal costs. Compared with Europeans, Americans tend to live farther from their parents and siblings. They are less attached to their neighborhoods and less familiar with their neighbors. But there are also advantages to mobility: If the economic conditions in a region aren't particularly good, Americans tend to look for better opportunities somewhere else. By contrast, Italians and other Europeans tend to stay put. They give up career opportunities and higher salaries to be close to their parents and friends.

Among Americans, however, there are large differences, with some groups much more willing to move than others. At the time of the Great Migration in the 1920s—when more than two million African-Americans abandoned the South for industrial centers in other regions—less-educated individuals were more likely to migrate in search of better lives. Today, the opposite is true: The more education a person has, the more mobile he or she is. College graduates have the highest mobility of all, workers with a community-college education are less mobile, high-school graduates are even less and dropouts are the least mobile of all.

Emphasis added. The inertia of Europeans, particularly Italians, is remarkable. More people graduating from university aren't overriding the dominant cultural disposition. Becoming better educated doesn't matter as much as it does in the United States. Why? People develop, not places.

The key mechanism at work here is the city itself. Dense and interactive connectors, cities are economic and social organizing machines. They bring people and ideas together, providing the platform for them to combine and recombine in myriad ways, spurring both artistic and cultural creativity and technological innovation, entrepreneurship, and economic growth.

This is what Jane Jacobs taught us long ago in her book The Economy of Cities. This is what the Nobel Prize winning economist Robert Lucas meant when he formalized Jacob’s argument into a theory of "human capital externalities" that stem from the dense clustering of people in cities as the basic mechanism of economic growth. Cities themselves power economic progress, driving artistic, technological, and overall economic growth at one and the same time.

It’s always been that way, as detailed archaeological and anthropological studies show. Stephen Shennan at University College London, for example, looked at the sudden spikes of artistic and technological progress that occurred in Europe, Africa, and the Middle East throughout prehistory and concluded that what they all had in common was the growth of local population densities.

Emphasis added. That's a powerful argument. It's also wrong. The very act of moving to a city powers economic progress. Greater density will not help the diffusion of ideas and culture. Very dense neighborhoods with low geographic mobility (i.e. churn) tend to be poor, not rich. If Florida was right, the relative lack of geographic mobility in Italy wouldn't matter.

So what’s going on? A mixture of powerful economic phenomena are boosting the value of living around other college graduates. Young educated workers will change jobs numerous times over their careers, which makes living in a large, “thick” labor market with diverse opportunities more appealing. The same force leads an increasing number of educated two-earner couples to these same sorts of large metro areas. Living in a highly educated metro area boosts one’s own acquisition of human capital and earning power, and leads to better employment outcomes for workers across the education spectrum.

Like Florida, Berube is standing on firm research ground (see links in above quoted passage). Without migration, there are benefits from a college degree. With migration, there are benefits from leaving a weak job market for a strong job market. I'm interested in isolating the effects (i.e. benefits) from simply relocating. In other words, even moving to a weaker job market would be worthwhile. The bottom line would be increasing geographic mobility, which pushes beyond the boundary of Enrico Moretti's analysis.